The Law of the Jungle (2014)

To be honest, when I first read about a lawyer who was suing Texaco for the environmental damage caused by the drilling of oil, on behalf of Ecuadorian inhabitants of the Amazon rain forest, I thought it must be the second coming of Jesus.  As a legal professional and an environmentalist I was excited to read this book by Bloomberg Business Week journalist, Paul Barrett, convinced that I was about to learn about a new hero.  I could not have been more wrong.

Ecuadorian Background

In order to properly discuss the moral and legal catastrophe that ensues, I think it’s best to start at the beginning.

Prior to the exploration of oil, the Ecuadorian economy was quite limited, suffering from a series of boom and bust export markets (cacao in the 1920s and bananas in the 1940s).  The country and its population were poor, endangered by drug wars in Columbia and marred by near-constant political pandemonium.  In March 1964, Texaco heard about the discovery of oil reserves underneath the Amazon rain forest and signed a contract with the military junta that ruled Quito (a region of Ecuador), for the right to explore 4 million acres (about the size of Kuwait).  In 1970, the junta then forced Texaco to hand over one-quarter ownership of its venture to the newly created state oil company, Petroecuador.  By 1977, the government actually owned 62.5% of the entire operation and by 1992, Texaco had reduced their ownership to 0% and the Ecuadorian government had profited to the tune of $23.5 billion (Texaco, $1.6 billion).

Despite this the country was still cash-strapped and in 1990 it had to abandon its membership in the OPEC oil cartel as it was unable to pay its membership dues.  Mismanagement of the entire operation, from the existence and enforcement of safety standards to the use of the oil revenue, had left the various farmers and tribes that lived in the rain forest incredibly poor and sick.

When drilling for oil, fluids known as drilling muds are used.  Drilling muds contain acids, corrosion inhibitors, biocides and fungicides.  Oil-related toxic compounds known as polycyclic aromatic hydrocarbons (PAHs) were found in the area’s water used for drinking, bathing and fishing in levels ten to one thousand times greater than U.S. Environmental Protection Agency (“USEPA”) safety guidelines.  The most harmful chemicals, benzene and toluene, are serious carcinogenic agents.  Exposed populations face an increased risk of serious health effects such as cancers and neurological and reproductive problems.

In 1976, the Ecuadorian government requested that Texaco drain and cover its waste oil pits, however the company rejected the request on the ground that it would too expensive at $4.2 million (despite the fact that they were failing to use techniques that had become commonplace in American oil operations).  Internal documents at Texaco later revealed that the company had a practice of not disclosing accidents or company practices that may cause ecological damage and even went further in discouraging employees from recording any of the impacts of drilling.

At the time of Texaco’s exit from Ecuador in 1990, Texaco and Petroecuador began to negotiate the cost of cleaning up.  Texaco offered $3 million to clean the waste-oil pits and surface spills at drill sites in the jungle and wipe their hands of the whole mess.  Petroecuador found the offer insultingly low and after a few years of negotiation eventually settled on a deal in which Texaco would remediate 37.5% of the oil sites (a percentage reflecting Texaco’s average ownership stake from 1977 through to their eventual exit).  However, Petroecuador’s lawyers wrote an appallingly bad agreement in which the explicit terms only called for Texaco to “investgate” the 133 well sites and seven spill areas.  In a self-serving but ultimately short-sighted decision, Texaco investigated the sites and in the vast majority took no action (USEPA clean-up goals dictate that the total petrol hydrocarbons (“TPH”) should be no higher than 100 parts-per-million – Texaco negotiated to remediate to a level of 5,000 parts-per-million).  Petroecuador had secured no legal obligation from Texaco to clean up any of the degraded waterways or provide medical treatment to anyone effected.  Yet Ecuador accepted these terms and Petroecuador then assumed responsibility for the sites disregarded by Texaco.  Ecuador had blatantly failed to foresee the issues these oil pits and spill sites would cause.  For a developing country, environmental protection was just not a priority in the exploitation of natural resources or negotiations with global corporations.

Donziger Background

Part two of the introduction is our leading man: Steven Donziger.  Born in Jacksonville, Florida, in 1961 he was greatly influenced by his mother who was an active protestor in support of Cesar Chavez.  Donziger started his career as a journalist and followed the contra militias in Nicaragua.  

Donziger always saw himself as a protagonist and was quoted as saying, “Being a journalist is good preparation for being a human rights lawyer.  You’re looking for truth that the corporate and political establishment wants to cover up.”

After a few years in Nicaragua, Donziger followed one of his heroes, consumer-rights advocate Ralph Nader, in pursuing a law degree at Havard Law School.  The most esteemed of Donziger’s law school friend’s was Barack Obama.

Donziger began work as a public defender, representing teenagers accused of street crime, but always had his eye on something bigger.

Aguinda I (New York, USA)

In 1992, Judith Kimmerling (a Yale-trained litigator) wrote a report for Oxfam on the damage done to the Amazon in Ecuador.  Kimmerling had also written a book called Amazon Crude, which detailed the exacerbation in wealth disparity within Ecuador since the drilling of oil began via the contamination of water supplies which caused the destruction of local fisheries, farmland and livestock.  Cristobal Bonifaz, an American lawyer of Ecuadorian descent, read the report and contacted Kimmerling about the possibility of beginning a class-action lawsuit against Texaco and Petroecuador (class-action being the American legal vehicle through which someone can bring a claim on behalf of a large group of people).

When Bonifaz laid out his plan to pursue Texaco, Kimmerling eventually refused to participate due to the difficulty she knew they would face in finding epidemiological evidence linking the contamination of the water supply to the local deaths from cancer.  Bonifaz was not put off, he had all Kimmerling’s research at his disposal and his son, John Bonifaz who had just graduated from Harvard Law School, was able to provide his father with the names of many young litigators who would jump at the chance to join such a lawsuit.

Enter Steven Donziger.  Compelled by the idea of a campaign that combined litigation, promotional tactics and humanitarian issues, he signed up to assist Bonifaz.

Bonifaz originally wanted to bring the case in the Ecuadorian courts, however, he was discouraged by the country’s institutionally weak judiciary and political turbulence.  Consequently, Bonifaz chose to bring the lawsuit in New York, the home state of Texaco.

Aguinda, as the case became known due to the name of the lead-claimant, listed seventy-six tribal Indians and migrant farmers suing on behalf of thirty thousand similarly situated people living on the original concession taken by Texaco.

One of the first hurdles to overcome was how to pay for the case, as it would not generate income for many years.  Without support, the behemoth of Texaco would crush the claimants. Consequently, Bonifaz allied himself with the Philadelphia law firm Kohn, Swift & Graf (“KSG”) who had a history of class action suits in the United States.  In return for 25% of the eventual damages, KSG agreed to fund all the up-front expenses.  Managing partner Kohn was no philanthropist, publicly stating this “could be the largest fee-producing case the firm has ever had.”

Even with KSG’s backing Texaco’s legal team did not initially consider the lawsuit to be a significant threat. They compared the claimant’s lawyers to ambulance chasers and responded matter-of-factly with a defence of lack of causation (i.e. there was no evidence proving the causal link between the oil spills/contamination and the deaths) and forum non conveniens (the jurisdictional defence that New York was not the correct court within which to hear merits of the case and as such should be dismissed by the New York courts and transferred to Ecuador).

In November 1996, the New York courts granted Texaco’s motion to dismiss the suit with the presiding judge stating that the claimant’s needed to “face the reality that the authority of the U.S. judiciary does not include a general writ to right the world’s wrongs.”

Ecuador’s political gymnastics (concerning the case – the country has been politically turbulent almost since inception) sprang into action upon realising that the case may now be transferred to home jurisdiction.  The then-president, Fabian Alarcon, publically supported the case after Bonifaz provided a written promise to the Ecuadorian government that were the claimants to secure a judgment against Texaco (which provided for joint/contributory liability against Petroecuador) then his clients would expressly waive their right to collect such money from Petroecuador.  As Barrett rightly notes, “This constituted a monumental concession by Bonifaz.  By pledging not to go after Ecuador or its national oil company, he reassured the government that it could support the suit against Texaco without risking any liability itself…Bonifaz effectively absolved the Ecuadorian state of blame for ecological damage that the country’s leaders, at a minimum, had tolerated…Bonifaz’s motive for letting Ecuador off the hook could not have been more transparent: He sought a colossal pay-out from Texaco, and wanted to focus judicial and public animus solely on the wealthy American company.  Indicting a malevolent global oil giant had more sex appeal than trying to hold a struggling national government responsible for letting down its people.”

Aguinda II (Lago Agrio, Ecuador)

Class-action suits were completely alien to Ecuadorian jurisprudence and Ecuador was still an extremely dangerous place to be.  The town of Lago Agrio, in the district of Quito, was marred by the violent cocaine trade.  Lago in particular was patrolled by Ecuadorian soldiers in jeeps due to the narco-gangsta guerrillas of the Columbian group, FARC (Fuerzas Armadas Revolucionarias de Colombia or The Revolutionary Armed Forces of Colombia), who regularly terrorised the area.

“No had ever attempted to sort out such a complicated dispute involving money, politics and science” in Ecuadorian courts. Consequently, it was even more alarming when the judge declared that the trial would only last six days, during which witnesses would be interrogated, there would be no jury and after which the judge would preside over 122 in-person visits to well sites and separation stations before court-appointed experts would compile reports from which the judge would then form his decision.  This was an amazingly lax procedure compared to the scrutiny the sites and witnesses would have faced in the U.S., but it suited Bonifaz and Donziger down to the ground.

Donziger, who had begun to take over from Bonifaz after showing a greater appetite for spending time in Ecuador, finally had the setting he wanted and began a fight for the hearts and minds of the public.  Buying space in both Ecuadorian and US publications, he advertised the case as a no-holds-barred courtroom brawl to be heard in Ecuador, a “Billion-dollar lawsuit between rainforest Indians and Texaco heading for trial: A real-life ‘David vs. Goliath’ story”.  He also began couching the terms of the argument in very grand language, stating the case was a way to “re-allocate some of the costs of globalization…to the most vulnerable rain forest dwellers from the most powerful energy companies on the planet.”

I should note at this point that in October 2001 (as the inspections of well-sites were ongoing), Chevron purchased Texaco (along with its legal liabilities).  The combined company of ChevronTexaco (which was later renamed to just Chevron) was the world’s fourth largest non-state-owned oil company with global revenue of $66.5 billion via production of 2.7 million barrels of oil a day.  As part of the buyout, Chevron approached Bonifaz in 2000 about settling the claim, to which Bonifaz proposed a $140 million figure.  Chevron summarily rejected the offer and did not even bother with a counter offer.

This willingness to settle so soon, enraged Donziger.  Donziger’s strategy was clear from the outset.  The courtroom was just a sideshow; he wanted to paint Texaco as a cold, corporate bully unwilling to pay for the mess they made (which was true to a certain extent), and then use the negative publicity and pressure to force Texaco (now Chevron) into a huge pay-out.  He knew that he media would be more curious about costumed Indians than the less exotic migrant farmers who were the majority of the claimants in the case.  To that end, on the first day of the trial, 21 October 2003, Donziger arranged for hundreds of Cofan and Huaorani tribesmen and women to march on the courthouse holding placards demanding “No Mas Muerte” (no more death) and “Texaco, Basta!” (Texaco, Enough!).  He also arranged for the court proceedings to be aired on national radio and informed television stations of every opportunity to film court exits and the filing of documents, etc.

He and his small team began regularly scripting releases portraying Texaco as “having pumped nearly all the oil this small Andean country produced until 1990, maximising profits, ecologists here say, by using inexpensive and environmentally unsound methods” and blatantly disregarding the role of the Ecuadorian government and the fact that the majority of the profits remained with the state owned Petroecuador.

He formed an alliance with the Amazon Watch (an anti-corporate, San Francisco-based advocacy group) and Frente de Defensa de la Amazonia (the Front for the Defence of the Amazon) and recruited celebrities (such as Bianca Jagger and Trudie Styler (Sting’s wife)) to raise awareness.  However, Donziger’s approach was quickly becoming viewed as inviting of too much circus and controversy as larger environmental groups (such as the Natural Resources Defence Council and the Sierra Club) declined invitations to involve themselves.

In 2003, Donziger commissioned a report from an American engineer, Dave Russell (picked due to his lack of expertise and openness to suggestion), in which the cost of remediation was bullishly stated at $6.14 billion and that deployed purposefully incendiary language (“you’re looking at something, size-wise, larger than the Chernobyl disaster”).  Donziger loved the comparison to Chernobyl and in 2004 authored an academic article entitled “Rainforest Chernobyl” and instructed his staff, allied groups and celebrity support to use the analogy as often as possible.

Undeterred by the controversy, Donziger made an astute move to keep the Ecuadorian public onside.  He understood that being white, he was not ideally placed to be the face of the suit, “he did not want a gringo”, so instead he groomed a young activist lawyer from the Frente, Pablo Fajardo, to be his public puppet.   Now growing in power and influence, especially after he forced Bonifaz out in 2006, Donziger cultivated the nickname el Commandante.

As Donziger’s power increased, so did his grip on morality.  Up to now he had simply engaged in publicity stunts that bent the truth for his clients.  Now Donziger believed with increasing conviction that opponents of power had to use irregular tactics if they expected to prevail and he began brazenly throwing the rule book out.

Donziger attempted to befriend the judge and deployed attractive female interns on his staff to flirt with the judge in an attempt gain leverage by way of sexual harassment blackmail.  Donziger became increasingly involved in Ecuadorian politics and supported a young, obscure, leftist candidate by the name of Rafael Correa who in 2006 became president.  Donziger, in his private notes which later became public, noted, “Think of what has happened in ten years; how we have gone from fighting on the outside of power to being on the inside.”  The first public use Donziger had for Correa was to orchestrate an announcement that all the Ecuadorian lawyers working for Chevron were traitors to their country.  Later, Correa took a highly publicised tour of the pits with camera and news crews in which Donziger scripted memorable media moments as Correa asked leading questions of the local, sick inhabitants.

In February 2006, after a sudden attack of conscience, Russell wrote to Donziger stating that he no longer stood by his previous report’s remediation estimate (having conducted further research he believed a truer estimate was $600 million).  Despite repeated requests, Donziger continued to publicise the $6 billion figure and Russell applied for a cease and desist order.

Things took another turn for the worse, as Donziger began to feel funding pressure from KSG (by 2007 KSG had funded Donziger and his staff to the tune of $5 million and the firm was now starting to experience cash-flow problems of its own).  Consequently, he developed a strategy to speed up proceedings:

• Convince the Lago court to end judicial inspections of the wells and to appoint a sole expert;
• Increase Ecuadorian political pressure on the judge; and
• Increase media attention in the US in order to prime the fund-raising pump and increase public relations pain for Chevron.

In June 2007, Donziger pressured the court into appointing as the sole independent expert an engineer by the name of Richard Cabrera (picked by Donziger because he would have no problem writing the report the claimants wanted), behind the back of Chevron.  The claimants immediately began prepping Cabrera and doing his research for him.  Donziger’s notes boasted, “This is a huge victory!!!!”

To help Cabrera write the report Donziger enlisted the Colorado-based law firm, Stratus (whose role was to remain absolutely secret).  The pollution specialists at Stratus were unimpressed by Cabrera’s scientific grip of the scenario, lacking the necessary qualifications and experience to properly evaluate the environmental damage.  Nonetheless, Donziger and Stratus practically co-authored the report which Cabrera submitted to the Ecuadorian courts on 1 April 2008, now somehow managing to value the cost of remediation at $16 billion.

Naturally Chevron’s lawyers contested every assumption and statistic used in the report, but even more audaciously, Donziger protested the report, stating that it was not generous enough.  In response, Cabrera filed a second version of the report in November 2008.  This time, the estimate was $27.3 billion.  In all, Chevron made over thirty court filings objecting to Cabrera’s methods.  Cabrera swore his neutrality in front of the judge and Donziger stood idly by.

Not content to be falsifying evidence, Donziger wanted further public pressure so he recruited the acclaimed documentary film-maker Joe Berlinger to develop a documentary-come-publicity vehicle about the Ecuadorian case.  Donziger persuaded his wealthy Harvard law School friend, Russell DeLeon (who had made his fortune by starting the online gambling site PartyGaming) to invest $900,000, while Netflix invested a further $300,000 in return for distribution rights.  The documentary, entitled Crude (which is still available on Netflix), debuted at the Sundance Film festival in January 2009.  Donziger and Fajardo attended in person and gladly received the adulation of the crowd.

Perhaps worst of all, Donziger persistently attempted to impede Petroecuador’s remediation efforts, desiring that the pits be left as they are in order to display the atrocity of the damage while the case remained unresolved.  By this point I’m completely against Donziger, no matter how noble his ambition is.  He has been absolutely absorbed by the case and it is obvious that he has completely lost sight of his desire to help the people of Ecuadorian Amazon live healthier and better lives.  As Barrett notes, “Donziger’s deal with the devil was becoming increasingly perverse.”

However, I don’t mean to paint this as a thoroughly one-sided affair.  The defendant’s legal team committed similarly illegal and immoral acts in the hope of gaining advantage.  In October 2005, prior to the inspection of a site called Guanta, the Lago court anonymously received a military report stating that the Cofan were planning an ambush and kidnapping (despite having no history of violent or illegal behaviour).  Chevron lawyers immediately filed a request for the inspection to be called off.  It later became apparent that the Chevron’s legal team and the Ministry of Defence had been working together and that the report was based on intelligence traced back to an unnamed Chevron employee and a former Ecuadorian army captain who now did security work for the oil company.  The Ecuadorian media had a field day and Donziger was able to propel his narrative about a “military-corporate conspiracy against justice”.

In early 2009, Chevron hired young journalists to go into Ecuador under the guise of reporting an article in order to get close to the claimants and attempt to uncover some of the secret tactics they had been using/statistics they had been manufacturing.

In August 2009, the company declared that it had uncovered video evidence of a bribery scheme involving the case’s judge from a local man named Diego Borja.  After investigation, it became apparent that Chevron had been involved in the sting operation in an attempt to disqualify the presiding judge.

In the face of an opponent quite clearly willing to fight dirty, you can understand how Donziger managed to convince himself that his own tactics were justified.  However, little did Donziger know that of all the shady tactics he used in the case, it would be his ego that ultimately caused his downfall.  In his desire to elevate his own standing and publicise the case by filming all variety of meetings, protests and court appearances he would unwittingly provide his opponent with a lethal weapon.

As a tactic of last resort, Chevron had hired the LA-based law firm, Gibson, Dunn & Crutcher (“GDC”) in order to destroy Donziger’s credibility.  In reviewing all the evidence they could get their hands on, GDC realised that the Netflix movie contained a scene of Dr. Carlos Beristain, a Spanish doctor who had helped Cabrera with some of the medical aspects of his report, meeting with the claimant’s legal team.  Donziger’s manufacturing of evidence had been caught on camera and distributed to the world.

Beginning in January 2010, GDC used an obscure piece of US legislation to lodge 1,782 petitions to seek practically every communication exchanged among anyone who had worked for or with Donziger.  One of the most damning pieces of evidence to come from the discovery process was that of another early expert in the case, Calmbacher, who categorically stated that the reports were fraudulent.  Furthermore, there were emails in which Fajardo pleaded with Berlinger to remove the scenes including Beristain from Crude. 

This culminated in a New York court hearing in December 2010 in which Donziger reluctantly confessed to having prepared the bulk of the Cabrera report under the weight of overwhelming evidence.  However, Donziger continued to insist that he sought to achieve legitimate ends through unconventional means.  The New York judge ultimately ruled that Donziger and his clients were forbade from enforcing any judgment that they may obtain in Ecuador.

Decision

In September 2010, judge Nicolas Zambrano took over the Ecuadorian case.  In under three months he claimed to have read over 20 years’ worth of documents relating to the case with no assistance except from his 18 year old secretary.

On 14 February 2011, judge Zambrano delivered his 188-page judgment. Chevron lost to the tune of $9 billion.  Furthermore, should the company not deliver a public apology to the nation of Ecuador, the judge ruled that the damages award would be doubled.  Chevron duly refused and, after incidentals, the final damages totalled $18.2 billion (at the time the company had $17.1 billion in cash reserves).

Faced with the difficult ruling in New York, Zambrano summarily swept all the issues of expert impartiality under the rug when stating the reports of Cabrera and Calmbacher had been disregarded in reaching his verdict.  Furthermore, the culpability of Petroecuador was also swiftly dealt with when concluding that “After 1990, Petroecuador may have added to the contamination, but the national oil company’s negligence did not exonerate Texaco.” And in one last leap of jurisprudential faith, judge Zambrano iterated that despite the epidemiological studies presented being inconclusive on causal connection between oil and illness, they “suggest a connection between the risk of having cancer and living in an area having petroleum exploitation."

As Barrett summarises, “an American judge would not recognise the decision as one based on conventional legal reasoning or rigorous scientific evidence.”

As it turned out, Donziger had managed to ghost-write the majority of the judgment (in fact, it’s embarrassing how poorly Donziger covered his tracks with an entire third of the judgment containing verbatim portions of memos drafted by the claimant’s legal team) by offering Zambrano a bribe of $500,000.  By February 2012 judge Zambrano had been ousted from the Ecuadorian judicial council and in 2013, Zambrano was summoned to a New York courtroom to be cross-examined about his ruling.  In yet another embarrassing turn, the judge did not know what TPH stood for (total petroleum hydrocarbons), despite referring to it thirty-five times in the judgment, nor could he name the most carcinogenic agent found in oil (benzene).

The judgment could not be enforced in Ecuador as Chevron had no assets in the country. Failed attempts in Canada, Brazil and Argentina were made.  A twenty year legal battle ended in an empty victory for the claimants.

Conclusion

What started out for me as a grand story, marking the beginning of a new era of corporate environmental accountability quickly became a false dawn when the rules were so flagrantly disregarded.  In the end, no one comes out of this looking good, and it is the Ecuadorian people who continue to suffer.

The Ecuadorian judiciary is blatantly weak and corrupt. The Ecuadorian government and Petroecuador were negligent and never held to account.  The government should have negotiated a proper remediation agreement and legislated for vastly better environmental standards rather than rolling out the red carpet in order to turbo-charge their economy in the short term.  But these were all decisions taken in the 1970s and 80s when the environmental agenda was simply nowhere near as well recognised, understood or appreciated.  Their decisions are somewhat understandable in my opinion.

However, Petroecuador drilled an additional 700 new wells after Texaco’s exit (at which point there were 322 wells).  Their own records indicated that from 1995 to 2011 more than 1,900 spills occurred in the area (about one every three days, totalling almost 130,000 barrels).  Ecuador still generate significant oil revenue every year (primarily via Chinese oil companies that have taken up the concession), and their populist president Rafael Correa, has still to deploy such revenue into a meaningful clean-up of the Amazon’s spill sites.  Water remains polluted, stalling the local economy, and local inhabitants continue to contract cancer at alarmingly high rates.  In June 2013, 10,000 barrels of oil were spilt in the area.

Texaco, of course, are not without blame.  They should have conducted their business more ethically and sustainably by properly lining pits, injecting contaminated water into deep underground wells, cleaning spills and contributing to a legacy fund for clean-up.

But for me the real villain of the story is Donziger.

Donziger not only displays a complete lack of professionalism, he has set the environmental movement back by decades.  By discrediting class action lawsuits and environmental claims/lawyers, calls for environmental remediation will be tarnished with the same brush and unfairly dismissed (see the much more realistic and sustainable class-action suit law firm, Leigh Day, recently secured against Royal Dutch Shell for the residents of the Niger Delta - £55m).   

Donziger sought to do (extremely) well, while doing good for others, but ultimately achieved neither.

Rather than being the overtly environmental book that I expected, this is a book about the reality of large-scale litigation and the inherent politics and morality involved.  Rather than being about the clean-up of a devastated area, this was a book about a giant ego that masqueraded behind the pretence of selflessness.  Ultimately, this is a frustrating story about the opportunity to advance environmental law and improve standards and accountability within oil companies, that was completely corrupted by a man with a maniacal pursuit to win at all costs.

Score: 55/100

The Secret World of Oil (2014)

The discovery of oil as a source of energy has fuelled economies the world over.  The radical improvements to agriculture, manufacturing, textiles, construction, and transport made possible by the exploitation of this incredible natural resource has drastically improved the quality of life for everyone on the planet since the beginning of the 20^th century.  The fact that this transformation was brought to us by the world’s oil industry is a great credit to them and should not be forgotten.  However, that is probably the last nice thing I am going to say about the industry.  What follows is the dissection of a bloated, greedy and dying industry that perpetuates global and societal inequity and environmental degradation for the benefit of a very few.

Investigative journalist Ken Silverstein’s “The Secret World of Oil” illuminates the dark corners of this guarded industry.  In an attempt to distil some of the more interesting points in the book I’ll discuss the oil industry in relation to countries, middlemen and then derivative markets.

Countries

When the “Seven Sisters” (comprising the Anglo-Persian Oil Company (now BP); Gulf Oil, Standard Oil of California (SoCal), Texaco (now Chevron); Royal Dutch Shell; Standard Oil of New Jersey (now Esso) and Standard Oil Company of New York (Socony) (now Exxon Mobil)) exploited the world’s oil fields in the mid-1900s, the majority of the world’s oil rich nations (Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, UAE and Venezuela) banded together to counteract the Seven Sisters power to pillage their natural resources while failing to share revenue, transfer technology or clean up their mess.

In hindsight, this was the creation of Frankstein’s monster: OPEC (the Organisation of Petroleum Exporting Countries).  OPEC now operates as a legal price-fixing cartel, only held legal by the fact they are countries rather than private entities (and thus benefitting from the law of sovereign immunity).  Had any collection of private entities banded together so blatantly to manipulate the price of a commodity (and in this case, perhaps the most important tradable commodity in the world), national and international competition authorities (such as the UK’s Competition and Markets Authority, the US’s Federal Trade Commission, or global organisations such as the OECD, WTO or G8) would have come down on them with serious punitive measures to destroy their ability to pervert the market for their own gain.  Instead, OPEC now sets the price for just under 42% of the world’s oil supply, heavily distorting the global market and contributing to a market that is rife with corruption.

At the time of writing, oil is trading at its lowest price in years.  Counterintuitively OPEC has chosen to use its power by publicly stating that they will maintain current production levels, sending the price of oil plummeting (news link) (don’t be fooled though, this is no act of charity, it is a power move designed to decrease the profitability of the current US boom in oil production (via shale) – they will collude to raise the price again once it is over).

In doing so, OPEC members utilize the basic economic laws of supply and demand, and I have no problem with that.  Any single resource provider/exporter has the right to restrict production in order to reduce market supply (however, when doing so they do incentivise the development of substitute goods – in this case, renewables or nuclear) but acting in unison is always anti-competitive and drives the price up for consumers.  The US has approximately 12% of the world’s oil supply (Russia (12%), China (5%), and Canada (4%) being the other large, non-OPEC producers), but the government has far less control over the private entities that do the drilling.  Consequently, the justification that the OPEC cartel is legal because the members are nations (and thus the benefit is theoretically shared with each country’s populace) is quickly discredited once you realise that the countries in OPEC have historically been run by autocratic dictators who persistently embezzle their oil revenue, for their own greed, rarely applying the funds to address the issues of insufficient infrastructure, poor healthcare and poverty that run rampant in these countries.

In developed nations, if you want to drill for oil you negotiate a licence with each local landowner, provincial or state authority and pay him royalties.  In the Third World, power is concentrated in the hands of a dictator or a small group because mineral resources are typically owned by the head of state.  Perversely, a strongman president, using an inherently centralized process is great for oil companies as it is a lot easier to win support from the top than to build from the bottom.

Consequently, the leaders of oil rich nations rank among some of the richest people in the world, but lead some of the world’s poorest countries.  Look up any of the following: Omar Bongo (Gabon), Mobutu Sese Seko (Zaire), Sami Abacha (Nigeria), Teodoro Obiang (Equatorial Guinea), Laurent Kabila (Congo), Nursultan Nazarbayev (Kazakhstan), Huh Sen (Cambodia), Ilham Aliyev (Azerbaijan), Islam Karimov (Uzbekistan), Garbanguly Berdimuhamedov (Turkmenistan).  The reason you haven’t heard of them is because their populations are kept so poor and isolated that they do not possess the means to be heard and because it works for the oil companies to keep it that way.  Furthermore, if you do hear their names, they constantly hire lobbying and PR firms to ensure negative press is quickly spun in a positive light.

Silverstein goes to great lengths to unveil this gross corruption by highlighting the excesses of Teodoro Obiang, the son of Equatorial Guinea’s leader by the same name (who ousted his uncle in a violent military coup to become president in 1979). Jr. lives a lavish lifestyle in LA, chartering private jets, dating playboy bunnies, buying sports teams, mansions and fleets of sports cars (the guy would be a hilarious caricature if it weren’t for the corruption that led to his embezzling of roughly $600 million) while Equatorial Guineans suffer horribly with rampant human trafficking, suppression of the media, half of the population having no access to clean water and 1 in 5 children dying before the age of five.  It is abhorrent that the country’s oil-wealth has led to huge personal wealth for a few individuals while the country lives in poverty.  It is equally deplorable that major world-powers have refrained from standing up to Obiang for fear of losing access to Equatorial Guinea’s 0.4% of the world’s oil (Condoleeza Rice calling Obiang Sr. a “good friend” in 2004 and Obama inviting him to the Whitehouse in 2009).

The embezzlement of these funds has been made possible by a select group of countries who have chosen to turn a blind eye when it comes to banking.  The fact that the Cayman Islands, Panama, Switzerland and even a great majority of American states have enacted laws stating that it is not necessary for companies to disclose their beneficial owners (as opposed to their registered owners, who serve as fronts) allows these leaders to hide their ill-gotten gains and perpetuate the cycle.

Middlemen

It is clear that despotic presidents and oil companies have fared very well from the status quo, and I believe that is largely common knowledge if you’ve taken a passing interest in geopolitical affairs over the last few decades.  However, what Silverstein does a great job of uncovering is the vast wealth this has created for middlemen.

Because oil companies are cash rich, but opportunity poor, the competition to become friends with leaders has become intense.  Consequently the crucial question becomes: how do you beat your competition to the key decision makers? That’s where “fixers” come in.  Fixers make introductions and broker deals between states and companies.

Again, look up any of the following: James Giffen, Jamal Daniels, Friedholm Eronat, Marc Rich, Hany Salaam, Fouad Ajami, or Gilbert Chagoury.  You won’t know their names, and they have worked hard to keep it that way.  They trade world leaders and oil company executives like baseball cards.  Their service is like that of a concierge at a fancy restaurant; tip them and you will get the table you wanted (except this tip is millions and/or stocks, options, diplomatic immunity, etc.).

These are men of impressive commercial acumen and political opportunism, but I struggle with the morality of their motives.  Silverstein illuminates his subject by focusing on two in particular: Ely Calil and Marc Rich.

Ely Calil, a Nigerian born man of Lebanese descent, pushing 70 years old, now lives in London after having spent the majority of his career fixing oil deals for Mobil in Russia, Kazakhstan and Nigeria.  Arranging introductions, and quite often taking healthy cuts of deals for himself, has been good to Calil who was well-known for counting Severo Moto (the leader of Equatorial Guinea before Obiang), King Abdullah II (Jordan) and Peter Mandelson as some of his closest allies in the past.  Rather than shoehorn my own incomplete opinion into this review, I have chosen a few choice quotes from his interviews with Silverstein to illuminate Calil’s perspective of his role within the oil industry:

“Corruption isn’t endemic in the energy business because people in the industry are more corrupt or have lower morals but because you’re dealing with huge sums of capital…A million dollars here or there doesn’t make any difference to the overall economics of a project, but it can make a huge difference to the economics of a few individuals who can delay or stop or approve the project.”

“There used to be about 40 people who ran the oil-trading business, but then the world got bigger, especially when the oil market boomed and the hedge funds came in, but it’s still a pretty small group of people.”

“From a strictly legal standpoint, there was nothing strictly illegal about it.  It has become illegal now…Was it legal? Yes.  Was it moral?  I don’t know.  But business isn’t about not making money.  I’m not a philosopher, but the law is there to be tested.  If you’re on the wrong side you should be sanctioned, and if you’re not you should be left alone.  Americans want their gasoline cheap, but it’s not possible without cutting a few corners.”

“Oil is not a commodity, it’s a political weapon.”

“There’s no way to do business in the Third World without enriching government leaders.”

I would not classify Calil in the same bracket as the dictators he chooses to keep for company and trade for his living.  He took advantage of a commercial opportunity by simply introducing people; what those people did after the introduction was not under his control.  But he is certainly an enabler and another example of an individual who become disproportionately wealthy from (and thus indirectly contributed to the poverty perpetuated by) the oil industry.

While stronger anti-bribery laws have reduced the clout of fixers in recent years, they continue to outpace and outsmart regulators.  Rather than directly funnelling money to dictators, companies simply partner with a local company that is owned by a president, oil minister, or some other official that needs to be appeased.  Safe to say that where centralised decisions regarding oil persist, fixers will continue to profit.

Derivative Markets

In contrast to my slightly conflicted opinion on Calil, the other fixer highlighted by Silverstein, Marc Rich, is perhaps one of the most poisonous men the world has never heard of, in my opinion.

A Belgian-born US citizen, Rich started life as a fixer before starting an oil-trading company called Glencore in 1974.  At first glance, trading oil seems like a perfectly legitimate and relatively harmless business model in order to redistribute a physical commodity to where demand is highest in the world.  But when looking deeper at global oil prices, in conjunction with the rise in power of these trading companies (see also Vitol, Gunver, Dagmara, Envergure, Cargill, Addax and Trafigura), I am compelled by a different story.

Silverstein describes how, since the oil shocks of the 1970s (caused primarily by the Israeli-Arab war of 1973, the position the political position the US took in that war and the subsequent reaction of OPEC) the price of oil has largely been driven by supply and demand (with distinct geopolitical dimensions).  However, in the last decade prices have swung wildly in the face of such market forces.  For almost 20 years the price fluctuated between $10 and $40 per barrel.  However, in 2005, the price jumped quickly to $70, then after a short lull, again to $140 in 2008, but then fell all the way to $30 within a year and tripled again within three.

The primary reason for this severe and seemingly illogical fluctuation in the price of a commodity with a relatively stable supply is the introduction of a variety of sophisticated hedging techniques recently adopted by oil traders.  Where traditional traders used to trade equally in the physical and paper trading of oil (the latter’s job being to hedge the sales of the former), modern trading firms now perform 50 paper trades for every one physical trade.  Consequently, for every barrel of oil sold, 50 bets are being placed on at what value it will sell.  Silverstein interviewed half a dozen traders for the purpose of the book but they all refused to speak on the record.  One ex-trader stated, “Historically paper markets were created to facilitate trade by letting buyers and sellers hedge their bets.  The intention was not for people to gamble or to give them the ability to manipulate the market, which is what happens today”.  While it is not suggested that there is conspiracy between traders to consistently short the market, the ex-trader goes on, “these guys all know each other.  It’s so easy to influence prices.  If someone at one trader decides he’s going to start selling one hundred million barrels of oil, the market will obviously go down.  No doubt if he makes a call to his friend, and that friend talks to his friend, in a few days everyone is selling, selling, selling – and the insiders sell early and make a giant profit.”

This further perversion of the oil market drives up the cost for the end-user and increases geopolitical tensions.

Now the world’s biggest middleman (valued at $232.7 billion), Glencore is headquartered in Zug, Switzerland (close to Geneva, where OPEC’s headquarters are located – in fact, due to the sheer number of times Switzerland reoccurred in Silverstein’s book, I’m led to believe that the majority of the world’s oil industry operates in the area under the safety of their banking secrecy laws and friendly tax regimes).  Operating through a maze of subsidiaries that make it virtually impossible to know who they are trading with, how much and at what prices, Glencore now wants to control the entire supply chain: pumping, shipping and refining oil while trading and hedging all along the way.  They are an “active predatory force”, designing a system in which, at every step, the money stays in the same pocket.  Silverstein reports that Glencore’s effective global tax rate for 2010 was just 9.3 percent, because nearly half its 46 subsidiaries are incorporated in “secrecy jurisdictions”.  Furthermore, it appears that no money-making strategy is off the table as Glencore helped bankroll the Ivory Coast strongman, Laurent Gbagbo, in 2007 in return for future exports.

Importantly, when it comes to the media, oil traders consciously stay away from the public spotlight, which is probably why you’ve never heard of Glencore despite it being the tenth biggest company in the world.  Commodities trading remains as one of the world’s most opaque, secretive, corrupt – and globally consequential – industries.

Other discussions

Silverstein’s chapters on dictators, traders and fixers were a riveting insight into the recesses of the oil industry, but I must admit that the book doesn’t consistently deliver with chapters about lobbyists (much to my disappointment, as I really felt that was going to be ripe for plucking), legacy lawsuits, retired politicians who happily trump up the oil agenda for their last pay day, and gatekeepers who enmesh themselves in the fabric of oil nations in order to profit from every move.

A discussion of the Louisiana’s Corbella case (one of the first environmental lawsuits against an oil company in which the plaintiff was awarded damages for the degradation of his land caused by the oil drilling techniques used) was enlightening, but too much was made of the seemingly surprising fact that US Republicans had sided with the landowners in these cases (because of their belief in the property rights over their supposed allegiance to the oil industry). 

A chapter titled “Tony Blair” had me salivating at the idea that I would unearth some seriously scathing analysis of Labour’s fallen hero, but instead it was simply the constant allusion that the extortionate fees Mr Blair charges for his public speaking these days have often been paid for by petro-states rather than anything much more nefarious.

George W. Bush’s brother, Neil Bush, was regularly thrown under the bus for being an incompetent energy executive who has bumbled his way through countless companies, bankrupting most along the way and only surviving through a series of hand-outs and political favours doled out by his family’s impressive oil network.  This was hardly surprising news and felt more like Silverstein just wanted to score some easy points by picking on some well-known names.  I wish he had spent more time exploring the themes of environmental degradation and high-level collusion than personal knit-picking of this nature.

However, the book was incredibly thought-provoking.  It is easy to label the oil industry as bad, and I have often done so.  It is much informative to read an investigative journalist’s findings and understand how the industry can be so poisonous, why corruption persists and consider if anything can be done to change it. 

Unfortunately, having read the book, the picture looks quite bleak.  Where such huge sums of money stand to be made corruption will ensue.  While oil remains the driving force of almost every global economy, there will never be the political will (or the authority) to effectively police the world’s corrupt leaders.   Though the book contained no real discussion of the future direction of energy companies (i.e. their ability and/or willingness to phase renewable energy into their portfolios), I feel that this is where our collective mind must now turn.  Rather than be upset by this frustrating set of circumstances, the book reinvigorated my passion for a green energy economy, free from dependence on oil.  Besides the environmental/climate change issues associated with oil this is an incredibly poor way to power our economy and ultimately our society.

In reality, the only solution is time, a commitment to raising living standards and unearthing corruption the world over.  Time for alternative energy sources to develop.  Time that will then drive down the price of the alternatives, reduce the demand for oil and hopefully eradicate the negative externalities Silverstein’s The Secret World of Oil so importantly reveals.

Score: 66/100 

The Politics of Climate Change (2009)

 

Regardless of how convinced you are by the science of climate change, it cannot be said that a failure to reach scientific consensus has been the primary force preventing a meaningful redress of the issue. 

Instead, political reticence to advocate for short-term sacrifices, for fear of losing popularity and economic standing, has been the obstacle most ardently preventing progress.  In reviewing The Politics of Climate Change, I hope to illuminate some of the points Anthony Giddens forcefully makes about the issues surrounding political inaction on climate change and hopefully encourage a dialogue about how we can overcome such procrastination.

By way of introduction, author, Anthony Giddens, is a former Director of the London School of Economics and a current member of the British House of Lords, who has had plenty of experience trying to advance legislative solutions to climate change.  Unfortunately, he has only been relatively successful in bringing such foresight to fruition (through no fault of his own, I may add).  Consequently, Giddens is a credible source when discussing the roadblocks faced by those who attempt to implement such statutory advances.

For those familiar with the issues, the first half of the book retraces the well-worn arguments of the threat of climate change, together with its economic and social consequences.  If you are reading this blog then I believe I shall assume that, whether it is at the top or bottom of your list of priorities, you have an informed opinion on the matter and I won’t beat the horse to death by replicating the arguments.

The discussion of political action on climate change can be overwhelming, so I shall start by breaking it down into the following categories, which I will then discuss in turn:

1.      International Agreements

2.      National Policy

3.      Control of Energy Companies

4.      Public Psychology

International Agreements

The first problematic dynamic encountered when examining any global negotiation on climate change is the struggle between ‘developing’ and ‘developed’ countries.

The ‘developed world’ has attained a satisfactory standard of living by developing strong economies, which by and large, are powered by non-renewable fuels that have contributed the lion’s share of the climate change effect. 

On the other hand, the ‘developing world,’ by its very nature, has contributed fewer emissions, causing less of the problem.  Naturally, they seek to develop their economies as rapidly as possible in order to provide humane living standards for the majority of their populace (with little regard to what fuels are used to achieve such ends).  Consequently, ‘developing countries’ have traditionally been wary of restricting their own behaviour in order to address a problem primarily created by the ‘developed world,’ especially when those measures are likely to inhibit economic growth in the short term.

The moral weight of an effort to alleviate poverty is hard to argue against.  To restrict the behaviour of nations that did not significantly contribute to the problem, who seek to improve the lives of those who have so little, makes any effort appear unjust, paternal and authoritarian.  We therefore see that right off the bat, an international consensus is hard to achieve due to differing historical degrees of culpability and moral arguments about basic human rights.

Nonetheless, the history of international environmental agreements started out amicably enough with the Montreal Protocol initiated by the UN in 1987 (a multilateral agreement to reduce the use of chlorofluorocarbons (CFCs), prevalent in hairspray and other products, which were damaging the ozone layer).  No great economic sacrifice was necessary to change the active ingredients of deodourant, so the international community was rightly ebullient and self-congratulatory when it could address such a problem after the scientific consensus had emerged.

Negotiations between ‘developing’ and ‘developed’ nations began to bear fruit with the invention of the doctrine of “common but differentiated responsibility.”  The idea being that those with the best economic ability to address the problem take the lead and allow poorer nations to concentrate on economic advances with concessions on emissions output. 

But no sooner had instruments been put in place to address the tensions between ‘developed’ and ‘developing’ nations (through mechanisms such as the Clean Development Mechanism (CDM) and differentiated responsibility), than ‘developed’ nations recognised the second problematic dynamic of international environmental negotiations: international jockeying for economic advantage.

At the UN Rio Earth Summit in 1990 we saw the first occasion on which ‘developed nations’ opposed action on climate change.  U.S. President George Bush Sr unambiguously announced the position when he stated that, “the American way of life is not negotiable,” in response to suggestions that non-renewable fuel consumption would have to be curtailed.

The 1997 Kyoto Protocol attempted to mandate that ‘developed’ countries to reduce emissions by 5.2 % over 1990 levels by 2012.  Such a mission was scientifically understood to be an essential mitigation strategy should the worst effects of climate change be avoided.  However, Russia, Australia and the U.S. were all notable dissidents.  Vast countries, heavily dependent on fossil fuels to transport goods throughout their economy, they were obviously disturbed by the short-term detriment this would cause their economies.

American industrial lobbies notably increased the pressure on successive US governments to refrain from signing up to binding targets, arguing that joining such an agreement would lend a competitive advantage to China.

Furthermore, Giddens explains the lengths to which EU diplomats had to go to obtain Russian agreement when summarizing that, “Russia at that point wanted EU support for its bid to join the World Trade Organisation; while the EU, the leading force in climate change negotiations, needed Russian participation in Kyoto to salvage the whole thing.  So in effect a bargain was struck.”  Evidently, there are no free lunches in international negotiations, even when we are dealing with a global problem of manifest importance.

Even with Russian support however, the U.S. and Australia pushed for voluntary emission reduction commitments over binding targets and consensus was obfuscated.

Thus we see that climate change negotiations cannot be removed from the competitive world.  Despite the agreement over the need for meaningful action, international treaties on climate change are always likely to be held to ransom by the effects they will have on each country’s relative standing in the global economy.  No country will be willing to bind itself to a target that confers a competitive advantage on another nation or a greater detriment on itself.

Unanimous action will thus be nigh on impossible when the consequences of such an agreement cannot be distributed equally.  The result of such negotiations will therefore always be that a compromise must be found and the ability to make a serious impact on climate change will inevitably be diminished.

Consequently, it was no surprise when the Bali Summit negotiations proved unfruitful in 2007.  Giddens noted that such economic protectionism has become increasingly entrenched, and despairs, “If this is success, give me failure!”

Giddens argues that we need the confluence of four factors if international environmental treaties are to make the necessary in-roads:

1.             Universal participation

2.             Binding emissions targets

3.             Integrated emissions trading schemes (however, carbon emissions trading schemes have to be designed very carefully since the wrong policies can produce perverse incentives that distort the market and promote protectionism) and;

4.             Compensation to poorer countries to get their cooperation.

This is without even considering the major issue of energy security which threatens to deteriorate international cooperation. Scarcity of energy could lead to climate change issues becoming increasingly militarized and dominated by security risks.  Giddens notes that “China’s growing influence in the Middle East and Africa is a particular concern.  Russia’s return to geopolitical prominence has been driven almost entirely by the rise prior to 2008 in the price of oil, gas and industrial materials.”  Climate change negotiations are thus inextricably linked to international politics, as well as economics.

The confluence of these four factors is proving no easier with time, yet the EU continues to lead the way in relation to climate change policy.  Such leadership is commendable and necessary; however, it walks a fine line between heroism and cannibalism.  This is because increasing energy costs are making it harder for European companies to compete in the global market place when not all parties are committed to the same emissions reduction objectives.

Furthermore, within the EU, this global leadership/sacrifice is creating additional tension with Germany.  Germany has the strongest economy within the EU, yet one that is still heavily reliant on the competiveness of their car, chemical and steel industries (all fuel-intensive).  The EU Commission President, Jose Manuel Barroso, remarked on the current conundrum when stating, “There is no point in Europe setting up demanding regulations if the result is simply that production shifts to countries where there is an emissions free-for-all.”

Giddens concludes the fraught EU position when remarking, “The EU placed a gigantic bet that economic interdependence and the collaboration of nations would triumph over traditional concepts of sovereignty.” However, the EU appears to be losing that bet as Russia attempts to undermine EU solidarity by continuing to strike bilateral energy deals with individual member states in an attempt to broker power away from Brussels. 

Unfortunately, these competing economic and political objectives have all been exacerbated by the global financial crisis of 2008, leading to a significant relapse in the global priority of climate change action.

The EU, through the UN, will have to continue to work towards achieving global consensus on climate change action.  However, with such unwillingness to make sacrifice by many major players, it is evident that international agreement will be the finishing touch, and not the driving force, of a climate change solution.

Consequently, we must now look to what influence national governments can have within their own respective borders.

National Policy

The role of national government, in relation to addressing climate change, is one of macroeconomic steering.  Governments must look to address climate change issues by rethinking industrial policy, energy markets, infrastructure and education. 

Giddens makes a compelling case that, in order to do so, we need to enter a new era of greater state intervention.  Such language is often unthinkable to those who support the notion of free markets; however, we have seen that to date the mass deregulation of markets has not had the intended effect.  Instead, we are currently witnessing unprecedented economic disparity between societal classes and unacceptable levels of environmental degradation.  Furthermore, national and global markets are significantly distorted by the unaccounted externalities of emission-intensive goods and services leading to a situation where companies are not properly penalized for polluting the atmosphere and the tax payer is left to foot the bill.  Governments worldwide have yet to address the problem by providing adequate price signals to effect the needed transition to a low-carbon economy.

Such distorted price signals are exacerbated by the reluctance of the governments to repeal fossil-fuel subsidies.  Governments are primarily pressured into keeping such subsidies by the strength of commercial lobbyists and the political necessity of keeping energy bills artificially low.  At the time of writing, Giddens notes that the fossil-fuel subsidies in OECD countries still total over $30 billion.

Subsidies are supposed to provide emerging technologies a helping hand to make it to mass market, when those technologies have the capacity to provide significant benefits to the general population (therefore, in time, repaying the investment of the taxpayer).  Their current use, artificially driving down the price of an increasingly expensive good (fossil fuel), is neither prudent nor sustainable.

To combat such inertia, the UK has recently set up the Infrastructure Planning Commission and empowered it with ability to override local governments in order to enforce a top-down transition to modern, energy efficient infrastructure.  This kind of authority is necessary to realize the ambitious goal of a low-carbon economy, however, we must always be careful that such power is not abused or indiscriminately applied.

Control of Energy Companies

In the UK, we are currently seeing what I believe to be the inappropriate use of government power on energy firms.  The leading six UK energy firms (E.on, EDF, British Gas, nPower, Scottish Power and SSE) are being called to account for their energy prices and coerced into lowering prices.  This short-term jockeying for political favour, in the run-up to the 2015 general election, fails to appreciate the larger forces acting upon these companies. 

Energy companies recognize better than most that a transition to low-carbon energy sources is necessary.  However, such a transition will take time and their ability to set appropriate prices to reflect the true cost of carbon-intensive energy sources should be left relatively unfettered.  Vilifying energy companies with rhetoric about grandmothers who cannot afford to keep their houses warm in the winter will only serve to delay the transition.

Nevertheless, no all government initiatives are so misguided.  Governments throughout the world are implementing carbon emissions trading schemes to stimulate technological innovation and redistributing funds for education in the sciences in order to unleash the dynamism of capital markets on the problem of energy transition.  This is a necessary measure, as Giddens notes, “without substantial government intervention there is virtually no chance of effective transformation in the electricity market.”  However, those who receive such support/subsidies cannot treat it as a natural right and resist the natural change of the market – dinosaurs must die.

What we really need is a Green ‘New Deal’ akin to the ‘New Deal’ implemented by Franklin Delanor Roosevelt after the stock market crash in 1929.  Giddens advocates a £50 billion investment in renewable technologies with the aim of turning every building into a power station.  Such a deal would emulate Germany where a similar programme has created 250,000 jobs in renewable technologies industries in just a few years (for further information, try “The Green Economy” by Van Jones).  

Whether or not Giddens specific plan is the correct one and whether or not any political party will finally have the courage to address the issue of carbon taxes is to miss the point.  The question really is, if the problem is so cogently understood and such a plethora of low-carbon economy transitions strategies exist, why do politicians have such a hard time implementing them?

Public Psychology

Giddens argues that the problem is primarily one of public psychology.  “Public enthusiasm for a given policy agenda rarely lasts long, even when an issue is of continuing and manifest importance…cynicism, unwillingness to make sacrifices, the perception that the costs are too great, or simply boredom can supplant the initial burst of public concern and support.”

It is therefore self-evident that the environmental agenda cannot simply rely on anxiety about a future risk as the sole motivator of political change as focusing incidents commonly steal the limelight.  Consider how often the national public discourse is regularly distracted by issues political scandals and celebrity affairs.  It’s not that some of these events are not newsworthy; it is simply that we must find a way to train ourselves to disregard the trivial.

Consequently, one of the major obstacles to climate change action is simply that it has to compete for public and political attention with issues that are basically more sensational and/or easier to fix.  This idea dictates that we (the public at large and public interest groups) must be more focused and vigilant if we are to take meaningful action.  Furthermore, we must demand more of the news media; mandating that they spend less time pandering to the celebratory culture and more time asking us to critically engage in public discourse about long-term problem solving.

Giddens notes, “Worries not linked in the public mind with clear modes of response quickly slip down peoples’ ratings of what disturbs them most.”  Consequently, the environmental agenda must find a way to engage with people by connecting the effects of climate change with their day-to-day life.  At present the effects are too far removed: rising energy prices, increasingly erratic weather patterns, increasing dependence on oil-states whose dictators frequently encourage corruption and commit human rights abuses, etc.

In order to cope, governments will have to resort to a range of strategies while at the same time trying to foster a more widespread consciousness of the need for action.  The habits and routines of everyday life stand in the way, in addition to the difficulty of getting people to accept that the risks are real and pressing.

In order to address these problems, Giddens suggests what he calls ‘radicalism of the centre.’  We must generate widespread support for radical action that can be removed from the traditional political terrain.  We must find a way to remove the temptation for parties to sacrifice longer-term goals in pursuit of immediate political advantage, especially when unpopular decisions have to be made (as we are currently seeing in the UK with the debate on energy prices/state control of the six major energy companies).

Furthermore, we need to advocate a return to planned communities.  Communities in which constituents take it upon themselves to effect the necessary change prior to the mandate of some bureaucratic edict.  We must call for civic pride and shared sacrifice. Britain has already created 10 eco-towns that are entirely self-sufficient, yet these are too few and far between.

Conclusion

International agreements on action over climate change appear to have ground to a halt.  Russian attempts to disrupt EU solidarity by exploiting their natural gas reserves are very counter-productive.  The reticence of developing nations to commit to binding emissions reductions targets is understandable; consequently, we must implore the remainder of the ‘developed’ world to get serious about sharing the sacrifice.  Unfortunately, this is unlikely to occur while the global economy is still in recovery mode.   

Instead, national governments must take the reins.  Unfortunately, it will continue to be politically suicidal to ask constituents to make sacrifices (such as paying higher energy bills) in order to begin the transition to a low-carbon economy while national economies are still in recovery.  Consequently, it is up to the voting populations of each country to generate enough political will to remove climate change from the traditional political fighting ground.  Can such a cross-party agreement ever be reached in the requisite number of countries?  Only time will tell, but I would argue that it will become inevitable once the effects of climate change become more visible in ‘developed’ nations.

The current politics of climate change pose a real and significant threat to genuine progress on the issue and only time will tell if we can act collectively before it is too late.  However, the conclusion I took from this book is actually quite uplifting.  Though climate change is a hugely complex, global problem, the solution lies in local action.  Petition your local government, initiate your own green schemes at work, invest in renewable energy and energy-efficiency measures at home (hopefully with a little government help) and together we can create a movement that bypasses the bureaucracy of international politics and generates the political will to effect change in your neighbourhood, your country and then our world.

 

Score: 88

 

Superfreakonomics (2009)

 

Conventional wisdom got in a fight with economics in the best-selling first instalment of Freakonomics in 2005, and naturally, economics won.  Now, Steven D. Levitt, the acclaimed young University of Chicago economics professor, and Stephen J. Dubner, the New York Times writer, are back again to fuse the weird and the wonderful, under the ‘unifying theme’ of how people respond to economic incentives and their unintended consequences, in the follow-up: Superfreakonomics.

Though Freakonomics never even flirted with anything close to the environmental, preferring instead to focus on cheating school teachers and sumo wrestlers, how real estate agents are similar to the Ku Klux Klan (don’t worry it’s nowhere near as nefarious as you might first think), and the economics of drug dealing, Superfreakonomics is breaking the ELR blog bank with a couple of eye-opening chapters on the lesser discussed solutions to Climate Change (though true to form, the book still explores the hidden economics of prostitution, suicide bombers and altruism!).

The first chapter that caught my attention started by discussing the devastating consequences hurricanes have increasingly had on coastal economies.  As Climate Change raises the ocean’s temperature, hurricanes are becoming increasingly common and increasingly destructive.    Hurricanes are formed as the ocean water rises in temperature and the winds gather that thermal energy from the ocean’s surface and convert it into physical force.  These hurricanes are hard to predict and for those unfortunate enough to live in their path, their lives are changed for years if not forever.  Of particular concern to Americans is Hurricane Alley, a stretch of ocean running from the West coast of Africa through the Caribbean and up towards the South-eastern United States (think Hurricane Katrina (New Orleans, 2005) and Hurricane Sandy (New York, 2012)).

Enter Nathan, a plucky man with a curious and intellectual mind, who has come up with an ingenious idea.  It’s called the Salter Sink (a.k.a. the Hurricane Killer).  Unassumingly referred to as “an inner tube with a skirt” that sits on the ocean surface, the Hurricane Killer works by rupturing the process that warms the ocean winds by using wave power to continually sink the warm surface water down to mix with the significantly colder subsurface waters.

Below is a mock-up of the design: quite simply a large floating ring, anywhere from 30 to 300 feet across, with a long flexible cylinder affixed to the inside running 600 feet deep into the ocean’s subsurface.

As warm waves splash over the top of the ring, the water level inside the tube rises above that of the surrounding ocean creating a ‘hydraulic head.’  The force this hydraulic head creates pushes the warm water down and out into the cold water below, therefore causing it to mix with the cold water and lowering the temperature of the surface water as it rises again.  This cyclical process is low-impact, non-polluting, scalable and slow (taking about 3 hours to push a molecule of warm water out of the bottom).

Nathan’s solution is thus to prevent the water in Hurricane Alley from getting warm enough to form a destructive hurricane in the first place.  A couple of thousand could be deployed (the most expensive version of which would cost a maximum of $100,000) to prevent hurricanes in the Caribbean and the Gulf.  A picket fence from Cuba to the Yucatan could theoretically negate the billions of dollars’ worth of damage that wrecks coastal areas every year (hurricane alleys also exist in the South China Sea and the Coral Sea off the coast of Australia).  Deploying 10,000 world-wide would cost $1 billion and would require relatively little maintenance, freeing hundreds of coastal cities to develop without the threat of regular destruction (furthermore, they could be moved in reaction to weather patterns).

In addition to cooling category 5 storms into less destructive ones, the salter sinks could also possibly be used to smooth out the boom-or-bust nature of rainfall in Africa and thus help to develop agriculture and address food-supply shortages.  When considering the expense that the majority of Climate Change mitigation strategies advocate, this solution is devilishly simply and cheap, but as Levitt and Dubner reveal, Nathan is only just getting started.

As the next chapter reveals, Nathan is Nathan Myrhvold, the former Chief Technology Officer of Microsoft and, at one time, one of the wealthiest men in the United States.  Nathan left Microsoft several years ago to set up “Intellectual Ventures,” (IV) a social enterprise gathering some of the brightest scientific and technological minds (including renowned climate scientist, Ken Caldeira) to work towards solving the world’s largest problems (without much concern for commercial payback).  In addition to what I am about to discuss, IV are also working on a eradicating malaria by designing a laser system that kills mosquitos as they cross a boundary,  amongst other amazing projects:

http://www.intellectualventures.com/index.php/inventions-patents/our-inventions

But more pertinent to this blog is the fact that Myrhvold has his sights set on addressing Climate Change.  Rather strangely, the ‘eureka’ moment came on June 15^th 1991 when Mount Pinatubo erupted.  The eruption was the second largest of the 20^th century and caused 20 million tonnes of sulphur dioxide to be spewed into the atmosphere.  What scientists noted over the following decade, contrary to popular belief, was actually a significant cooling of the earth’s atmosphere (0.5 ⁰C).  Nathan’s observation was one that is scarcely uttered in environmental circles: we’re too concerned with carbon dioxide!

The effect sulphur dioxide has on the earth’s atmosphere was first noted by Benjamin Franklin in his 1784 publication, Meteorological Imaginations and Conjectures, when he noted that recent eruptions in Iceland had caused a particularly harsh winter.  Though Franklin could only postulate at the time, as we now understand, the reason was because sulphur dioxide reduces the amount of solar radiation reaching the earth’s surface.  Thus, while carbon dioxide (and actually more potently, methane and water vapour) warm the earth’s atmosphere by trapping heat, sulphur dioxide has the ability to cool the earth by decreasing the amount of heat entering the atmosphere.

But those of you who paid attention in chemistry class may rightly be thinking, don’t we already emit a lot of sulphur dioxide into the air when we burn coal? In fact we do.   In the UK, in 2011, we emitted 379,000 tonnes of sulphur dioxide into the atmosphere (National Atmospheric Emissions Inventory website).  However, when you consider that in 1970 the UK emitted 6,370,000 tonnes, sulphur dioxide is actually one of the gases for which we have been extremely successful in reducing emissions.

In spite of this trend, the important question is not how much sulphur dioxide we are putting into the atmosphere, but where are we putting the sulphur dioxide in the atmosphere?  You see, emissions from coal plants go into the troposphere (the layer of the atmosphere closest to the ground) where it falls back down to earth, in the form of acid rain, within a week or two.  Why volcanic eruptions were so effective at cooling the planet is because they shoot the sulphur dioxide all the way up into the stratosphere (about 7.5 to 32 miles above the earth’s surface) where it absorbs water vapour and will form an aerosol cloud that can linger for up to a year.

So Myrhvold set his team of self-proclaimed geeks the following puzzle: how do you get sulphur dioxide into the stratosphere, and how much would you need to put up there to mitigate the temperature rise caused by Climate Change?

After a series of costly, complex and impractical ideas (including firing artillery shells full of sulphur dioxide into the sky, or launching a fleet of jet fighters using high-sulphur content fuel into the stratosphere), Myrhvold’s team at IV came up with another fiendishly simple and cost-effective method: a garden hose to the sky!

By using a series of high-strength helium balloons (one every 300 yards) and pumps (one every 100 yards), you could extend a hose 18 miles up into the stratosphere where it would spray a fine mist of liquefied sulphur dioxide out of a nozzle that would then be carried by the wind.  

But how many hoses and how much intentional pollution are we talking about?  Rather surprisingly, Myrhvold has calculated that we would only need two hoses (one at the north pole and one at the south pole) emitting 100,000 tonnes per year (0.05% of global sulphur dioxide emissions) to effectively reverse the warming effect.

Now, geo-engineering projects have traditionally been written off as science fiction (e.g. the space mirror scheme sending 55,000 reflective sails to orbit around the earth), but this is an idea that is backed by sound science, that is not incredibly expensive and let’s face it there’s something childishly fun about it.  If Myrhvold’s predictions are correct, the project (referred to Budyko’s Blanket, after the Russian climatologist, Mikhail Budyko) could be up and running within three years, for a start-up cost of $150 million and an annual operating cost of $100 million.  When you consider the findings of the UK Government’s Stern Report that estimated the cost of addressing Climate Change to be $1.2 trillion per year for the foreseeable future, this would be an incredibly cost-effective strategy.  In addition, it effectively repurposes existing pollution and provides the potential to avoid anti-carbon initiatives that could seriously hinder the global economy.

But this is where my showering of praise and optimism ends unfortunately.

Firstly, I recognise Myrhvold’s arguments that current Climate Change mitigation strategies are too small (alternative energy will not yet scale to a sufficient degree to address emissions problems), too late (the half-life of atmospheric carbon is roughly 100 years) and/or too optimistic (creating a carbon-free energy infrastructure will actually require a lot of emissions, effectively making Climate Change worse every year until we’re done building the necessary infrastructure, which could take thirty to fifty years), but I do not accept that they are lost causes. 

Pumping sulphur dioxide into the stratosphere should be a plan of last resort.  It is comforting to know that we have a potential back-up plan should other plans fail, but two wrongs do not a make right.  Wouldn’t such an unnatural counter-emissions strategy create apathy towards the environment, providing industry a free pass to pollute the atmosphere as much as desired now that we have the means to reduce the temperature?

Even if the answer to that question is ‘no,’ this is a strategy to negate “global warming,” not Climate Change.  Reducing the earth’s average temperature does not address the related problems of pollution, habitat destruction, biodiversity loss, energy profligacy, energy security, geo-politics and the squandering of natural resources.  This is not a solution to the problem; this is more like someone cranking up the air conditioning in your house when it is scorching hot outside causing you to forget that you’ll still need sunscreen when you step outside.

Furthermore, the fact that we cannot know the unintended consequences of this plan until after commencement should be enough to give pause to even the staunchest proponent.  Sulphur dioxide in the troposphere is already a known cause of respiratory problems and acid rain.  Moreover, the earth operates a complex feedback system regulating the concentration of gases in each eco-system and such a plan would fail to respect the delicate balance the earth’s forces constantly work to achieve.

Lastly, the practicalities of implanting such a strategy would be incredibly complex.  Who would pay for such a scheme (it could not plausibly be a commercial venture as it generates no revenue)?  Who would own it?  You could not alter the earth’s atmosphere unilaterally, so who would give permission to implement such a plan?  International agreement at the UN is hard to come by, even without regard to how easy it would be to scaremonger people on such a strategy  (most people feel uneasy with intentionally altering the earth’s atmosphere – note the irony here!).

Nonetheless I commend the provocative thinking and the desire of Myrhvold’s team at IV to do something big (see also the DESERTEC plan in the previous blog – Sustainable Energy – Without the Hot Air).  Within the next few decades it will be essential to drum up political support for a big idea, implemented on a global scale, if something meaningful is to be done.  The problem is that the political capital will be wasted if the wrong plan is proposed.

With that said, Superfreakonomics is a fascinating and fun read.  I was pleased that Levitt and Dubner took the time to unearth one or two of the exciting ideas surrounding Climate Change mitigation; I just want to caution that if a solution sounds too good to be true, it generally is.  Nonetheless, I implore everyone to keep a close eye on Nathan and his team at IV, they are undoubtedly one of the most ingenious and humanitarian organisations I have ever encountered.

 

Score: 70/100